The Bitcoin Crisis

Each day that goes by is another day in the Bitcoin story. This week Bitcoin-event is the shutdown of the first and biggest Bitcoin exchange company – Mt. Gox. The well-known Japan-based company was the platform where almost 70% of all Bitcoin transactions were made. As you can imagine, the shutdown is today considered as the biggest crisis the Bitcoin ever went through.

mt gox shutdown 2

Mt. Gox shutdown was the direct consequence of a leak document dramatically entitled “Crisis Strategy Draft” published by a Bitcoin blogger, Ryan Selkis. The document describes the “bug” that ended with a loss of 744,408 Bitcoin which represent 6% of all the Bitcoin in the world or about $350 million (on last week exchange rate). It is true that lately Mt. Gox’s users had been facing withdrawal issues – this seems to only be the top of the iceberg. In reality, Mt. Gox had been the victim of regular thefts that “went unnoticed for several years.” When the company tried to fix the bug, it was already way too late. Apparently, money had been withdrawn from Mt. Gox’s account for quite a while and when the virtual currency value grew, the withdrawal turned into the biggest heist of all time – more than 1 out of 20 Bitcoin in the world disappeared.

Because of the size of the crisis, other popular exchange companies such as Coinbase, BitStamp, Circle etc released a joint statement to appease the situation and the community:

This tragic violation of the trust of users of Mt.Gox was the result of one company’s actions and does not reflect the resilience or value of bitcoin and the digital currency industry. There are hundreds of trustworthy and responsible companies involved in bitcoin. These companies will continue to build the future of money by making bitcoin more secure and easy to use for consumers and merchants. (…)In order to re-establish the trust squandered by the failings of Mt. Gox, responsible bitcoin exchanges are working together and are committed to the future of bitcoin and the security of all customer funds. As part of the effort to re-assure customers, the following services will be coordinating efforts over the coming days to publicly reassure customers and the general public that all funds continue to be held in a safe and secure manner: Coinbase, Kraken, BitStamp, Circle, and BTC China.”

Few hours after, the value of Bitcoin dropped to $500 which is 50% less than its highest value at the end of 2013. Mt. Gox CEO, Mark Kapeles was forced to quit his position and the Board of the Bitcoin Foundation.

The leak document which was written by a well-known blogger, Ryan Selkis, really sounds dramatic: “At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public”. Here I would like to highlight that this was his personal reaction and vision of the future of Bitcon – not a prediction of the death of Bitcoin. However, the truth remains that the loss of 6% of all the Bitcoin in the world by the most famous exchange company represents the biggest crisis the virtual currency has ever faced. 

To conclude, strong rumours of an inside job are now flourishing online – the un-noticed disappearance of hundred of thousand of Bitcoin could be explained by two options: 1) Mt. Gox’s staff were highly incompetent since the withdrawals of Bitcoin had reached a very high amount and had been going on for a long time or 2) Mt. Gox could be guilty of corruption (a US attorney is now investigating the company). The amount of Bitcoin that disappeared is humongous. It should have been noticed and action should have been taken – but not if it was was coming from inside the company.

What we can remember from this story is that whoever made the withdrawals also performed the biggest heist in history.

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